The Startup Genome – hard data on entrepreneurial success

In October 2010, Adeo Ressi, founder of TheFunded.com created a stir in a presentation in Singapore where he claimed that entrepreneurship is something that cannot be taught. Furthermore, less than 2% of the population has the right skills and genetic make-up to succeed as an entrepreneur.

Ressi runs his own start-up incubator, the Founder Institute, so this is clearly something he has thought about. Yet with what we know about the importance of entrepreneurship to economic growth, this runs the danger of dissuading people to turn their ideas into businesses if they don’t think they have the ‘right stuff’.

To encourage start-up growth, and lay out a clear path to success for new entrepreneurs, we need a new paradigm of entrepreneurship education, based on data and scientific management philosophy. Bjoern Lasse Herrmann and Max Marmer, founders of technology accelerator Blackbox, recently teamed up with UC Berkley’s Ron Berman to do just this.

One of their main findings is that successful start-ups generally follow a six-stage process. Less successful companies skipped steps, or got stuck in a stage, burning through investor money.

The Startup Genome

Their report, The Startup Genome, is a 68 page summary of the common factors in successful start-ups. They sought to correlate business activities with evidence-based metrics such as investment money and user growth as an antidote to the assumption that entrepreneurship consists of ephemeral soft skills that “can’t be taught”

Their data comes from interviews with over 650 entrepreneurs and dozens of venture capitalists. The group was determined to “to increase the success rate of startups and accelerate the pace of innovation around the world by turning entrepreneurship into a science.”

The results of this report should be read, devoured and put into practice by every aspiring technology entrepreneur.

The Six Stages of a Successful Startup

One of their main findings is that successful start-ups generally follow a six-stage process. Less successful companies skipped steps, or got stuck in a stage, burning through investor money.

The first four steps are based loosely on Steve Blank’s Four Steps to Epiphany: Discovery, in which funding comes mainly from friends and family, Validation, where the value proposition is tested in a market, Efficiency, where the business model is tweaked, and Scale, which sees rapid growth.

Internet start-ups should work through these four stages in roughly two years, pushing themselves quickly to scale. One of the suggestions they give to venture capitalists is to hold out on large investments until this fourth stage, to avoid bogging companies down with capital before they have perfected their value proposition and business model.

The last two stages, Profit Maximization and Renewal, were not covered in this report, but the team is working on a fuller description of these “Marmer Stages” to distinguish them fully from Blank’s.

What Makes a Successful Entrepreneur?

One of the clearest indicators of a start-up’s success was the ability to which the start-up team could learn, and meld that information into their business structure. This was confirmed by looking at the success of VC portfolios. The most successful VCs looked for teams that could work well together, were willing to listen to advice, and listen to feedback from their customers.

Successful entrepreneurs see their value proposition as a hypothesis to be tested in the real-life laboratory of the marketplace. They then take what they learn and tweak their offering, sometimes throwing it out altogether to start again.

It’s dangerous to be so in love with your product that you’re unable to see opportunities to make it better. In fact, the team discovered that founders who were willing to “pivot” based on market conditions or customer feedback, raised 3-4 times as much money as entrepreneurs who stubbornly clung to their ideas. (Made worse by the fact that we tend to cling to our bad ideas.)

Diversity

in the founding team is also key. Lone founders took 2-3 times longer to reach the growth stage of their company than diverse teams who worked well together. Solo founders were often likely to over-estimate the size of their market by almost 100 times.

Another emergent theme was the importance of well-qualified mentors to the success of fund-raising and growth. Entrepreneurs who learn from “helpful mentors… and learn from startup thought leaders raise 7x more money and have 3.5x better user growth” says the report.

Another key finding was that entrepreneurs are, for the most part, not motivated by money. Only 5% of the 666 entrepreneurs surveyed listed money as their prime motivation. By far, “impact” was listed as more important, as seen in the below graph.

To emphasize this last point about impact over money, the Startup Genome is being given away for free on the web. Although the team could have made some money off their findings, they thought it was more important to share the data to empower would-be entrepreneurs the world over on what works and what doesn’t.

The data also showed clearly that entrepreneurs who put into practice suggestions from one of the many thought leaders in entrepreneurship were significantly more likely to raise money and achieve high growth.

For a summary of the key findings, check out the executive summary here. Startup Genome is still collecting data on what allows for success in entrepreneurship. Consider contributing to the survey here.

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Joseph Wilson

Joseph was an education advisor at MaRS Discovery District. He writes on topics of science, culture and city issues for NOW Magazine, the Globe and Mail, Spacing and Yonge Street. He is the Executive Director of the Treehouse Group, dedicated to fostering innovation by hosting cross-disciplinary events. See more…